We are involved in a contract where the contractor has been appointed on an ECC option E (cost reimbursable contract). The contractor provided an estimate of costs which was incorporated into the contract, but it has become evident that the contractor’s initial estimate of the cost was insufficient and it is now claiming a 25% increase in cost. Other than considering any disallowed costs that arise, is there any other recourse under the contract for this?


With option E, nearly all of the financial risks for carrying out the works lie with the employer and the contractor has little or no incentive to save money. The contractor is not required to provide an initial estimate of the costs, simply because option E is mainly chosen when the employer really does not know what it wants to build and therefore it is simply impossible to provide an accurate price in those circumstances. You say that one was included in the contract, but the contract does not specifically ask for this and it is difficult therefore to comment on its status.
However, there are some things that the contractor must do to protect the employer. The most important of these is that the contractor should prepare regular forecasts of what it thinks the defined cost of the whole of the works will be at the intervals stated in the contract, see ECC clause 20.4. If the contractor did not do this the project manager should have insisted on it at the time. In addition, as each change to the works information is made, or other compensation events occur. The processes for dealing with those compensation events should be followed, as with any other of the ECC options. The only difference is that the resultant answer is used to update the forecasts, see clause 65.3. If the contractor does not carry this out correctly then the project manager is obliged to step in and do it.
Unfortunately there are no other contractual remedies for this. The parties should have managed the contract in a way that there should have been no surprises, or at least they came at a time that gave the employer the best change to deal with them.